The Difference between Social Media and Social Networks

Much of the hype about social media obscures a vastly greater opportunity. Although social media types love to tell the rest of us that we “just don’t get it,” the fact is that very few social “gurus”s have actually taken the time to learn anything about social networks.

Happily, the joke is on them. Social networks are where the real money is.

Why Social Media Marketing is a Doubtful Business Opportunity

While the rise of social media over the last decade has opened exciting new opportunities, as a business it has some serious drawbacks. Among them are:

High Labor Costs: Social media is hard work. One-to-one communications can’t be automated effectively and there are few, if any, benefits to scale. You have to have real live people with good interpersonal, communication and problem solving skills.

That means you have to hire staff, train them well and retain them. Moreover, because a very large part of SMM is customer relations, knowledge is not easily transferable across clients.

If call centers are eminently offshorable, why does it stand to reason that SMM will be a high value added function a decade from now?

Zero Transactions: Not only are labor costs high, but they are the sole costs involved. In other words, SMM agencies hold no assets and manage no money. That’s not much of a business model.

Up Front Costs – Long Term Impact: Social media works slowly. While well established brands might be able to build a fast following, most companies will find that they need to build their networks one by one. That takes time. Anybody who expects quick results from social media is bound to be disappointed.

While it is crucial for businesses to start their social media marketing initiatives it should be viewed as a long term investment with clear and distinct costs but diffuse benefits. Mass media is still the best way to get your message out quickly (and indirectly then, to build a social media following).

Low Response: Despite all the hype, response levels for social media are amazingly low, which is why the inventory on sites like Facebook and MySpace are valued at a fraction of what branded content sites can demand. Social media is great for extending reach, but not so good for building it.

While SMM is becoming more of a necessity – the price of admission if you will – it is not a great business opportunity. All of the evidence points to SMM becoming an internal function rather than a marketing service.

Social Media isn’t Much Better

A decade from now, we will surely look back with wonder and admiration at a handful of social media sites who defied the odds and built fabulous businesses. Right now, the odds on favorites are Facebook, LinkedIn and Twitter, but really, who knows?

Social media advocates like to point out events such as the Conde Nast’s closing of Men’s Vogue (Men’s Vogue???!!!) as a harbinger of things to come. More likely, the incredibly rapid rise and fall of former standouts such as MySpace and Friendster is a true sign of the times.

Great businesses thrive on scarcity. Social media excels at oversupply.

The New Science of Social Networks

In contrast to social media, the emerging science of social networks truly has transformative power. In its present form it dates back to Watts and Strogatz’s 1998 paper (pdf) in the journal Nature. (For an explanation of their model, see here.)

The applications of social network theory encompass everything from marketing to counter-terrorism to cancer research. Here are three great ways it can be applied to business:

Organizational and Consumer Analysis: As I’ve written before, organizational charts are a poor guide to influence. Information often flows in very counterintuitive ways. Through social analysis, many companies are learning how to make their organizations work better.

Consumer markets are like organizations, although vastly more complex. While applications for consumer analysis are still very limited, this area has an exciting future. Most probably, the one true barrier to viability is processing speed and, as history shows, those kinds of barriers tend to come down.

Org.net, a management consultancy which specializes in analyzing the social networks of organizations, gives a good basic overview of social network analysis on their web site. Peter Gloor and Scott Cooper’s Coolhunting, speculates on how many of the same techniques can be applied powerfully to the marketing realm..

Big Seed Marketing: Anybody who doubts the value of mass media just doesn’t know what they’re talking about. In order to market effectively, you need to get your message out and quickly. Market opportunities are fleeting, competition is fierce and the consumer can’t wait.

That’s why anybody who expends an even minimal effort to check will find that almost 90% of media budgets go to traditional media globally.

Business Analysis: Another application of social network theory is to evaluate how robust your client network is. A business that is dependent on a small number of big clients is more susceptible to shocks than one that has diversified its portfolio.

Social network theory gives us a number of powerful tools for client portfolio analysis. I touched on some of the possibilities in this article.

How to Make Serious Money With Social Networks

While some of the most exciting possibilities of social networks are most likely in the future, there are a myriad of companies who benefit from social networks today.

Amazon.com differentiates itself not as an online store, but as a social network. Their interface, product line and customer relationship management, while strong, are easily replicated. What makes the site a standout is the customer reviews and suggestions.

A great “old economy” example is McDonalds, which utilizes its worldwide network of employees, operators and partners to generate and share best practices. It’s not crowdsourcing, as decisions are still made locally, but a strong network of relationships and shared experiences.

While the possibilities for social networks are endless, there are three clear principles that make them work.

Focused Communities: Vibrant social networks are not homogenous globs, but rather a diverse group of communities that link together. It is diversity, not uniformity that makes a network powerful. So it’s important to keep universal principles to a minimum.

Wide Scope: While individual components are discreet (e.g. Amazon is split into categories, McDonald’s into discreet business units with their own P&L responsibility), the scope of the network is virtually unlimited. In fact, social networks become exponentially more robust as they increase in scale.

The Strength of Weak Ties: Although the two previous conditions may seem diametrically opposed, in reality they are not.

One of the key insights of Watts and Strogatz is that it takes an amazingly small amount of mixing between communities to dramatically bring down social distance while maintaining significant clustering. Just a little overlap here and there creates connections along which information can jump long distances.

Successful multinational corporations know this, and encourage executives to spend time in different divisions. Amazon was able diversify their business because people who like to buy and review books have other interests as well.

The true opportunity before us is not social media. Anybody can learn to use Twitter in a very short period of time. Finding people who want to “join the conversation” will never be very difficult.

The new science of social networks, on the other hand, is a truly emerging field. While powerful and transformative, it requires a formidable skill set that will always be both scarce and in demand.

Rigorous skill sets, high demand and scarcity are what great businesses are made of.

Hey folks, we have batters on 1st, 2nd, and 3rd, with 2 outs in the bottom of the 9th. Greg Satell steps up to bat. The pitch is thrown. . . .whack!! He hits it out of the park ladies and gentleman! DigitalTonto wins, DigitalTonto wins!!

lol. . .Great piece Greg! I JUST had an in depth conversation with a former client about this yesterday. I’m feeling everything you discussed and have written a number of posts about getting the correct understanding about how to deal with social media. The most recent one http://www.cnvrgnc.com/journal-old/2010/3/7/mmmm-sexy.html I’ll be sharing this post with a number of colleagues of mine. Keep the good stuff comin’ my friend.

Great post, Greg. It lead me to debate in my head the difference between Social Networking and Collaboration. You do not use this word at all in your post, and it was the first thing I thought of when reading your statement “Social networks is where the real money is”. Collaborating is working together on something with a goal in mind. To me, the best opportunity (which includes monetary) for social media is to use the technology to collaborate. But we agree that using Social Media for marketing is a doubtful business opportunity. My caveat is that I’m not a marketing expert by any means, which explains my bias.

Perhaps Collaborating using Social Media is done in a social network, but a social network is not necessarily being used for collaboration.

I really enjoyed your post. As someone who works with companies on marketing and product development, I’ve had the chance to see some “social media” campaigns crash and burn, and others, which really were about using social tools to facilitate collaboration and connect people, bloom and grow. The difference has been in the approach to marketing, and the belief systems and knowledge of digital tools of the people involved.
For mass markets, mass products, and mass messaging, it becomes very hard to decipher messages and value through the din of social media. But for remarkable products and initiatives geared towards specific niches, social media, collaboration, and network enabling really can create a sense of community, loyalty and trust.

Just to be clear, I don’t mean to suggest that social media doesn’t have value, just that it’s doubtful as a stand alone business. I’m confident that every business needs to adopt social media techniques.

Outstanding article! I got involved in this proces back in August of last year. It has been a steep learning curve, but I agree with all the things you have said. 1.) very labor intensive 2.) very low ROI 3.) slow to build.

I would add one more thought. Our area is a technical niche market in the oil & gas industry. My experience over the last 8 months is that when you move away from retail and into technical arenas things get even harder. But, maybe that is just my inexperience and lack of knowledge talking.

Greg, thanks for the great insight. I am studying e-commerce right now and got a little tired of this teenage hype about social media. Some people even go as far as to say that thanks to Facebook Obama became a president. Isn’t it crazy?
To your list of drawbacks of social media as they are today I would add absence of objective evaluation tools. If it can’t be measured how can we tell it’s success?
Anyway, thanks for the great post. You’re in my Google Reader now :).

Thanks. A related, but almost totally overlooked point is the fact that Amazon is a far better example of a successful social network than Facebook is. Facebook has far more users but only a fraction of the revenues.

I totally agree with the “slow response” category. I have a friend who is a newbie in bookkeeping business. Unfortunately, she does’nt know how to get a clients of her own . She has a twitter account but no positive results. Therefore, she falls into the category of slow response. Nice post Greg!